China A-share strategy Report Interpretation

Overview

This China A-share strategy report argues that 2Q26 fundamentals improved further, with aggregate profit growth reaching its strongest rate since 2021. Nomura believes the medium- to long-term structural case for Chinese equities remains intact, but recommends balancing technology exposure with defensive dividend holdings until a clearer market recovery emerges.

Core views

Nomura finds that A-share fundamentals continued to recover in 2Q26. On a like-for-like basis, aggregate A-share revenue grew 9.18% year-on-year, or 6.51% excluding financials and the two oil majors, PetroChina and Sinopec. Net profit rose 25.76%, or 18.90% on the same exclusion basis, reaching its highest growth rate since 2021 and extending the improvement seen from 1Q26. CSI 300 constituents showed a similar pattern: comparable revenue growth rebounded to 9.50%, or 4.32% excluding financials and the two oil majors, while net-profit growth improved to 23.05% and 10.02%, respectively. The recovery was uneven and concentrated. Electronics, non-bank financials and non-ferrous metals delivered the strongest year-on-year profit growth, while 14 of 31 Shenwan Level 1 sectors still posted negative profit growth. Building materials, conglomerates and agriculture were the weakest areas. Communications, electronics and computers together generated CNY274.71bn of net profit; petrochemicals, coal and non-ferrous metals generated CNY274.82bn; and banks plus non-bank financials contributed CNY912.51bn. Collectively, technology, resource and financial sectors accounted for 75.21% of total A-share net profit in 2Q26. Nomura notes tentative easing in market volatility over the prior two weeks but believes the market may remain in consolidation. It cites elevated geopolitical risk, still-high US Treasury yields, and the need to unwind positioning and trading congestion that had accumulated before the July correction. The report argues that the global technology-stock correction reflects geopolitical and macro concerns and the unwinding of crowded positions rather than deterioration in underlying industry trends. On that basis, Nomura sees the correction as a potential opportunity to build technology exposure, but advises a more defensive stance until a clearer recovery trend develops. For the near term, Nomura recommends a balanced allocation as turnover moderates. Within technology, it favors hardware linked to expanding AI demand and constrained capacity, including memory, optical communications, power-supply systems, liquid-cooling equipment and gas turbines, as well as domestic computing hardware supported by policy and industry demand. Within dividend stocks, it prefers banks with modest capital requirements that can sustain relatively high ROE and dividend yields. It also identifies selective opportunities in domestic consumption and the property chain after substantial valuation derating, and in non-ferrous metals and energy if a weaker US dollar and resilient inflation persist. Over the medium to long term, the report remains constructive on structural opportunities from China’s industrial development, the scale of its capital markets and supportive policy. Low domestic interest rates enhance the relative appeal of dividend-paying stocks, which Nomura believes can provide portfolio defense if risk appetite remains unsettled and volatility stays high. Once a clearer market uptrend is established, it would place greater emphasis on technology and dividend stocks within the stated allocation framework.

Analysis framework

Nomura assesses comparable revenue and net-profit growth for the A-share universe and CSI 300, including figures excluding financials and the two oil majors to show the breadth of the recovery. It then compares profit contributions and growth across Shenwan Level 1 sectors, evaluates market and macro conditions affecting positioning and volatility, and translates these findings into a sector-balanced allocation framework.

Methodology notes

• Industry AnalysisVolume-price decomposition

  Comparable revenue and net-profit growth analysis across the A-share universe, CSI 300 and individual sectors.

  The report separates revenue growth from profit growth and compares sector outcomes to identify where the earnings recovery is strongest and how concentrated it is.

• Competition & strategy

  Balanced technology-and-defensive-dividend allocation framework.

  Nomura combines cyclical market-risk considerations with structural growth and income characteristics to identify technology exposure and dividend-paying banks as complementary portfolio components.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Technology hardware

  Favored for AI-driven demand expansion, constrained capacity and domestic-computing policy support.

  Strengths

  Memory, optical communications, power-supply systems, liquid cooling and gas turbines are linked to expanding AI demand.

  Weaknesses

  Near-term performance may be affected by market consolidation and crowded-position unwinding.

  Risks

  Slower-than-expected progress in the AI-driven technological revolution.

• Banks

  Favored dividend holding within a defensive allocation.

  Strengths

  Modest capital requirements and the ability to sustain relatively high ROE and dividend yields.

  Comparison

  Preferred within dividend stocks.

  Risks

  Broader market downside and weaker-than-expected domestic-demand recovery.

• Non-ferrous metals and energy

  Selective opportunity if the US dollar weakens and inflation remains resilient.

  Strengths

  Potential support from a weaker US dollar and resilient inflation.

  Weaknesses

  Conditional on the macro backdrop persisting.

  Risks

  Overseas macroeconomic and geopolitical risks.

• Domestic consumption and property chain

  Selective opportunity after substantial valuation derating.

  Strengths

  Valuations have undergone substantial derating.

  Weaknesses

  Recovery remains dependent on domestic demand.

  Risks

  Weaker-than-expected recovery in domestic demand.

Key data

• Comparable A-share revenue growth9.18% y-y in 2Q266.51% excluding financials and PetroChina and Sinopec.
• Comparable A-share net-profit growth25.76% y-y in 2Q2618.90% excluding financials and the two oil majors; the highest rate since 2021.
• CSI 300 comparable revenue growth9.50% y-y in 2Q264.32% excluding financials and the two oil majors.
• CSI 300 comparable net-profit growth23.05% y-y in 2Q2610.02% excluding financials and the two oil majors.
• Technology-sector net profit contributionCNY274.71bnCombined contribution from communications, electronics and computers.
• Resource-sector net profit contributionCNY274.82bnCombined contribution from petrochemicals, coal and non-ferrous metals.
• Financial-sector net profit contributionCNY912.51bnCombined contribution from banks and non-bank financials.
• Concentration of A-share net profit75.21%Share accounted for by technology, resource and financial sectors in 2Q26.
• Electronics profit growth232.44% y-yHighest reported 2Q26 net-profit growth among Shenwan Level 1 sectors.
• Agriculture profit growth-185.85% y-yWeakest reported 2Q26 net-profit growth among Shenwan Level 1 sectors.

Impact & implications

The report interprets stronger earnings as support for the medium- to long-term A-share opportunity, while the concentration of profits and unresolved market risks justify diversification. It favors technology for structural AI and domestic-computing demand, and dividend-paying banks for lower-volatility portfolio defense.

Risks

• Downside risk in the broader market.
• Slower-than-expected progress in the AI-driven technological revolution.
• Overseas macroeconomic and geopolitical risks.
• Weaker-than-expected recovery in domestic demand.

What to watch

• Whether market turnover continues to moderate and whether consolidation gives way to a clearer recovery trend.
• Developments in global geopolitical risk, US Treasury yields, positioning and trading congestion.
• The pace of AI-driven demand growth and capacity conditions in technology hardware.
• Domestic-demand recovery, US-dollar direction and inflation resilience.